WEAKNESSES

Risk assessment

Faster growth powered by oil and gas production

Growth in the Ghanaian economy should receive a boost from the oil and gas sector in 2017, as the TEN oil field gradually comes fully online following the start of production at the end of 2016, together with the arrival of the Sankofa field (scheduled for mid-2017). The industrial sector could also further improve thanks to gradual improvements in electricity supplies, with the increased production of gas to fire electricity power plants (Atuabo in particular). Services (financial, telecommunications) are expected to remain positive. Agricultural production, specifically that of cocoa, is likely to benefit from improved climatic conditions from those experienced in 2016, when there was a severe drought.

The high cost of credit, despite an easing in monetary policy in November 2016 (interest down 5 bp to 25.5%), will remain a limiting factor on investments. Government’s projects, particularly in infrastructures, may be revised downwards due to a more restrictive fiscal policy than initially planned. After having faced rising prices for utilities, household consumption (more than 60% of GDP) should increase as inflation remains moderate. A non-decreasing oil price and cedi’s depreciation would however hamper the retreat of inflation.

An improvement in public finances slower than projected

In February 2017, Vice President M. Bawumia revealed the existence of unrecorded expenditures for an estimated 7 billion cedis (1.6 billion dollars) by the previous government in recent years’ budgets. Fiscal deficit for 2016 should reach roughly 9% of GDP against 5.2% initially forecasted. Government has already announced that, given those elements, growth, fiscal deficit and primary surplus targets initially set for 2017 will be missed. The financial situation of a number of state-owned companies (mainly in the energy sector) could also weigh on public finances. However the State is expected to receive a slight boost to its tax revenues thanks to the increase, even moderate, in oil and gas prices, as well as from a dynamic growth rate. Moreover, the IMF confirmed that its fiscal support program, initiated in April 2015, is set to continue. Its expiry, currently scheduled for April 2018, might be postponed, subject to a commitment by the new government to keep expenditures (noticeably wages) under control.

The position of the banking sector, undermined by the economic slowdown, the depreciation of the cedi over recent years and the financial problems of major state-owned companies, has deteriorated significantly. The rate of non-performing loans doubled over a year to 24% at mid-2016. A recapitalisation of some banks could be considered.

The current account balance is expected to improve slightly with increased earnings from cocoa, oil, gas and gold exports. Even in the absence of an appreciation of for commodities prices (accounting for around 70% of all exports), the sole increase in volumes produced and sold abroad should help generate additional revenues. Imports of goods and services, however, are also expected to grow because of infrastructures construction, as well as increasing household consumption. Any reduction in the deficit is thus likely to be limited.

Foreign currency reserves increased slightly to around 4 months of imports at the end of 2016, thanks to IMF aid payments and a Eurobond issue (USD 750 million),. The depreciation of the cedi (-11% in 2016 against the dollar) could continue in 2017, with the government announcements on the budgetary situation and in case of banks’ bailout. The magnitude of this depreciation should be contained by positive developments in the negotiations with the IMF and the return of investor’s confidence in the capacity of the new government to halt the degradation of public finances.

Change in political leadershipin a country benefiting from good governance

Regularly cited as an example in the region for its level of democracy, Ghana held peaceful general elections in December 2016. The leader of the opposition, Nana Akufo-Addo (New Patriotic Party - NPP) has won the ballot in the first round with 53% of votes against the incumbent President Mahama (National Democratic Congress - NDC). The Ghanaian population counts on the new president to get the country out of the crisis.

According to the World Bank indicators, Ghana has a better record than most other countries in the region, although the lack of infrastructure and administrative burdens continue to inhibit the development of the private sector. Its performances in terms of combating corruption have improved significantly (98th in 2015 against 103rd in 2014).